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What You Need to Know About Singtel’s Latest Results?

Singtel had a strong 3QFY2022 results. Here's what you need to know why all the analysts are buying this stock.

Jasmine flowers are widely known for their unique fragrance. 

They are either white or yellow in colour. And in very rare cases, some of them are slightly reddish. They can be found in tropical regions, especially in Asia.

You know what? You can tell immediately it’s jasmine by smelling it from a distance. The fragrance is strong and obvious.

Recently, many analysts are bullish on Singtel (SGX: Z74)

  • CIMB — Add call 
  • DBS Research — Buy
  • Maybank Research — Buy
  • OCBC Investment — Buy
  • Phillip Securities — Accumulate
  • RHB Invest — Buy
  • UOB Kay Hian — Buy

And you can tell, when analysts have a buy call on a stock, you can smell something is up about the stock — good or bad. 

What’s going on with Singtel? 

The big message I’ve read from analysts reports are this — operational turnaround, recovery and asset divestment. In other words, analysts are betting on Singtel’s strong recovery story.

For one, analysts are cheering on that management is actively reorganizing Singtel’s business to unlock assets — towers, satellites, subsea cables and data centres — this frees up cash and Singtel can redeploy money into other business growth areas. 

There are many businesses Singtel has bought over the years. This makes Singapore’s biggest telecommunications company very heavy, very hard to move forward.

For instance, in its latest 3QFY2022 (ending Dec) results, Singtel has sold its 70%-stake Australia Tower Network (ATN) assets for A$1.9 billion (S$1.87 billion). 

Australia Tower Network is the biggest operator of telecommunication towers in Australia. Today, it owns more than 2,300 mobile network towers and rooftop sites.

It’s a pretty good deal. 

Singtel will record a massive S$400 million one-off profits from its asset sale. This is quite a good move, since the sale helps lighten up Singtel’s heavy assets. 

More importantly, this sale helps turn around Singtel’s falling profits over the last four years.

And what’s crucial is Singtel can use this money toward its 5G rollout and grow their digital services business.

What’s more, Singtel now has over 300,000 5G customers in Singapore. And another 5 million 5G customers in Australia. Investing cash from their asset sale in building their 5G business also helps to offset Singtel’s older, less profitable voice business.

Not too bad at all.

What’s also a big positive for Singtel is its Bharti Airtel business. Airtel has contributed most of Singtel’s recent 21% profit growth from its regional business — mainly India and Africa — to S$1 billion. 

Since Singapore’s biggest telecommunications company has made a lot of big moves, shares have jumped more than 30% since it hit the low last year.

 

Source: ShareInvestor Webpro

Going forward, Singtel will focus on three big businesses — Australia consumer, Enterprise and Singapore.

  • Australia Consumer — this is the key driver. And doing very well. This is Singtel’s Australia Optus business: mobile services and equipment sales.
  • Group Enterprise — Singtel selling to global companies for mobile, equipment sales, cloud computing, cyber security and IT services.
  • Singapore Consumer — local mobile, Pay TV and fixed voice.

So far, so good. 

That’s why analysts are all raving about Singtel.

Source: Singtel 3QFY2022 Financial Results

Turnaround and asset sales are going as plan. 

Singtel is heading in sort of the right direction — getting out of Singapore, and focusing on global corporate businesses. 

That’s the good news.

Here’s what you want to pay attention though — in stock investing, recovery plays can take longer than usual. And that means, as a company reorganizes itself, share price can get stuck going nowhere for a while.

We know the telco operator business is a ferociously competitive. And Singtel made the right move to get out of Singapore into a bigger, overseas market. But what’s more crucial to note is navigating through government regulation and anti-trust laws in foreign countries. 

That could put Singtel in a tricky situation.

What’s more, as Singtel tries to reinvest its business, investors will have to be content with falling dividends.

Is Singtel dividends sustainable?

Management has said it will pay 60% to 80% of its net profits as dividends. 

But Singtel is going through a major transformation right now. Its focus — “recovery”. Since FY2018, Singtel’s dividends has continued to fall from 20.5 cents per share to 4.5 cents per share in FY2022.

Singtel looks like it’s no longer a dividend giant as it was last time. 

It seems Singtel is showing signs of life — like a Christmas tree dragged out of the store room to be lighted in the living room. At the same time, Singtel must be able to steer well into the overseas market — Australia and India.

Singtel is a good turnaround play. 

But investors getting into this needs to have a darn long patience. In the meantime, I can’t expect much dividends from this stock.

Sometimes investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

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